2009 Manufacturing Trends Survey: Economy Ahead, Proceed with Caution!

Food safety remains paramount and energy’s cheap for now, but this certified recession has processors looking to 2009 with hesitation.

By David Feder, Technical Editor

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Last year at this time, nearly 77 percent of food and beverage processors who answered our 2008 Annual Manufacturing Trends Survey anticipated an increase in production of at least 5 percent in 2008. With the economy in the Port-a-Potty, processors this year are singing a different tune. Even dropping the minimum projected production increase to 3 percent brought those looking up in 2009 to only 56 percent.

On the other hand, 43 percent of respondents say they’re optimistic going into the new year; only 22 percent are pessimistic.

For the eighth year, our statistical analysis generates a picture of processor concerns for the year just getting under way. Based on a ranking scale assigning weighted relevance to each of nine categories (see figure 1), each concern was assigned points to determine level of importance.

Food safety, as usual, was No. 1, as it has been every year of our survey. Energy issues, for the second year in a row, are second, perhaps a little closer than last year (although our methodology changed). And labor issues again are third (energy and labor have jockeyed between second and third since 2006).

Two hot buttons of the past year – sourcing and materials and environmental concerns – picked up a few more votes this year, but not enough to move them up the charts. However, the cost of ingredients and commodities, which we thought we had covered in “sourcing and materials,” received the most write-in votes.

Half a dozen other questions asked how the economy was affecting their plants or their companies in specified ways. Despite the current economic straits, the most common answers each time were “not much” or “no significant changes.”

And the economic downturn has not slowed the emphasis on “green” initiatives. Sixty-two percent say sustainability efforts are becoming more important; 18 percent said less important.

Safety still first

Food safety marks its eighth straight year positioned as the top concern of processors. And for good reason: The past two years’ worth of food safety issues added intentional contamination of ingredients (from China) to the usual list of unforeseeable pathogen infections, undeclared allergens and animal and plant diseases.

As in previous years, processors still “get it,” that the key to better food safety and sanitation lies in employee training. In fact, the 84 percent of processors focusing on training is not that much lower than 2008’s 89 percent. HACCP plans, too, held up with 51 percent vs. 57 percent last year (see figure 2). Pest control was the interesting change: Last year, 51 percent of processors said they’d bolster food safety by going after critters. But this time that number dropped to 38 percent.
This year’s results track very closely with last year’s on concern about E. coli and other pathogens, outside audits and track and trace systems.

The E word

Despite no backtracking on food safety, the economy is the elephant in the room for this year’s survey. Not a part of our annual list of nine core concerns (we’ll add it next year), it’s the word on every processor’s lips.

When asked “How has the economy affected your plant?” exactly half said “not much.” But that means another half said reduced production (42 percent), layoffs (23 percent) and “closing of this or other locations” (6 percent).

“Cash flow is a major challenge,” notes Mark Miller, plant manager for an eastern mushroom products company. “We need to get paid [from customers] so we can pay our vendors. Already we’re seeing some evidence of slow pay turnaround, and I believe the worst is yet to come.

“I am concerned for the food industry,” he segued into another issue, “that inferior raw materials will continue to enter this country’s food chain, from China especially and other countries, and cause major concerns for U.S. food manufacturers. Perhaps just as the tomato industry suffered from the Mexican pepper contamination incident.”

That same respondent also expresses dissatisfaction with what he sees as political compounding of the problem. “From my experience, in our industry the USDA and FDA have largely turned a blind eye to imports from China. It’s a double standard consumers should know about. The USDA needs to protect them but won’t touch China because of political pressures. I’m sure large distributors and retailers will be importing more of this point-of-origin food to keep their own prices low and further put the screws to U.S. manufacturers, thus risk harming the consumers in multiple ways.”

When asked “How is your company dealing with the economy?” 40 percent see no great changes, and 27 percent actually report they’re growing. But 31 percent are seeing layoffs and others report salary cuts, consolidation and outsourcing (figure 3).

What does all this mean for expansion (or consolidation) of businesses in the coming annum? While more than half foresee some production increases in 2009 and 30 percent see it staying the same, 13 percent anticipate a drop in production where only a handful (3 percent) did last year (figure 4).

Two more E words

Last year at this time, all but 11 processors polled answered that they were “very” or “somewhat” concerned by the cost of energy — and that was before the big jump in oil costs in mid-2008. All but a couple dozen had been “moderately” or “severely” impacted by a rise in energy costs in 2007, with 55 percent finding the energy cost increases to be more than they anticipated.

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